Disabled Americans Shrink Size of U.S. Labor Force

May 3 (Bloomberg) — Michael White says he wishes he still could pluck the bass line to Hank Williams Jr.’s “Born to Boogie” and pay bills with money he earns himself. High unemployment — along with ailments that he says render his fingers inoperative and make him cough up blood — have dashed his hopes.

White is among the 1.6 million Americans who’ve claimed Social Security Disability Insurance, or SSDI, since the 18- month recession began in 2007. When the slump reduced demand for tow-truck drivers, the 60-year-old Fort Myers, Florida, resident, who has also worked as a musician, lost the job he’d held for five years and started collecting unemployment benefits.

Complications from chronic obstructive pulmonary disease, or COPD, diabetes and other medical problems then made it impossible for him to return to a labor market that lacks opportunities for people with health problems and those in better shape.

“I can’t stress enough that I’d rather be working, but my health has gotten the worst of me, and any place I would have applied wouldn’t have hired me,” White says.

The number of workers receiving SSDI jumped 22 percent to 8.7 million in April from 7.1 million in December 2007, Social Security data show. That helps explain as much as one quarter of the decline in the U.S. labor-force participation rate during the period, according to economists at JPMorgan Chase & Co. and Morgan Stanley.

Expiring Benefits

The participation rate — the share of working-age people holding a job or seeking one — was 63.8 percent in March after falling to a three-decade low of 63.7 percent in January. Disability recipients may account for as much as 0.5 percentage point of the more than 2 point drop since the end of 2007, the economists calculate, and that contribution could grow when some extended unemployment benefits expire at the end of this year.

“How we measure and understand what’s going on in the economy can be influenced by the degree to which various public- support programs are available and being used,” said Michael Feroli, chief U.S. economist at JPMorgan in New York. “With a rising number of disability beneficiaries, there are both lower unemployment rates and lower participation rates.”

More light may be shed tomorrow on the participation rate, when the Labor Department releases its April payroll report. Employers probably added 160,000 new workers last month, while the jobless rate held at 8.2 percent, according to the median forecasts of economists in Bloomberg News surveys.

Nearing Exhaustion

The White House argued in December that emergency unemployment insurance should be continued, partly because some recipients probably would apply for SSDI as their benefits neared exhaustion. Congress extended the payments in February.

“Workers on SSDI rarely return to the labor force, resulting in a loss to society of the economic contribution those workers could have made,” said the report, which was written by the National Economic Council, Domestic Policy Council, Labor Department and President’s Council of Economic Advisers. “Thus, keeping the long-term unemployed in the labor force should be a priority.”

More than 99 percent of all SSDI beneficiaries remain in the program until retirement age, David Greenlaw, a managing director in New York at Morgan Stanley, wrote in a March research note, citing government data. The program provides an average of $1,111 in monthly income to eligible workers with a physical or mental impairment that will last at least 12 months or result in death, according to Social Security.

Record Applications

The number of people collecting disability surged as the economy contracted, with the share of the U.S. population between the ages of 25 and 64 on SSDI climbing to a record-high 5.3 percent in March from 4.5 percent in 2007. Applications per 1,000 working-age people rose to 18 last year from 8 in 1990.

The gain follows a pattern typical of recessions because Social Security requires that claimants be unable to “engage in any substantial gainful activity,” a stipulation more easily satisfied when jobs are scarce and wages get cut, according to Virginia Reno, vice-president for income security policy at the National Academy of Social Insurance in Washington.

“Impediments to work are compounded for people with disabilities when the economy turns sour and there are simply fewer jobs and greater competition for the jobs that remain,” Reno said. Her group researches the impact of social insurance on economic security.

Unemployment Among Disabled

Unemployment among the disabled rose by 7.6 percentage points to 16.9 percent — in August 2009 and June 2011 — from 9.3 percent in June 2008, when the government began tracking the data. The comparable measure for healthy people climbed 4.8 points to a peak of 10.4 percent in January 2010.

White’s weekly income fell to about $800 as the recession struck, even though he often worked every day, from as much as $2,000 when the towing business was booming, he says. As towing jobs contracted nationally to 48,300 in 2010 from a peak of 52,800 in 2008, he was laid off and filed for unemployment insurance in September 2009, receiving about $1,200 a month.

Meanwhile, White says his health deteriorated: His COPD morphed into emphysema, he was diagnosed with diabetes, his fingers began to ache from neuropathy and he obtained a breathing device to combat sleep apnea. The former bass player for cover band Boston Post Road no longer could hold his guitar.

White says he routinely searched for eight to 10 jobs a week, more than required to keep his unemployment benefits, and would have taken any available position so long as his health permitted. No opportunities came up in the tight labor market, and anticipating his unemployment would run out, he applied for SSDI. He says he was approved in about five months.

Difficult Decision

The decision to go on disability can be difficult for people who’ve lost their job and then realize their health prevents them from working, said Sean Libby, vice president of corporate development at Freedom Disability, the advocacy company that helped White obtain SSDI. Unemployment insurance requires that applicants search for job opportunities, while disability insurance requires they be unable to work.

“You’re trying to make something gray into something black and white by saying, ‘On this date I woke up and I could no longer work,’” Libby said.

That gray area may be working to the advantage of some unemployed, according to economists David Autor at the Massachusetts Institute of Technology in Cambridge and Mark Duggan at the University of Pennsylvania’s Wharton School in Philadelphia. Because SSDI awards have soared even as the health of Americans has improved, SSDI “appears in practice to function like a nonemployability insurance program for a subset of beneficiaries,” they wrote in a 2006 research paper.

Lax Screening Procedures

Less-stringent screening procedures, more attractive benefits and a waning need for less-skilled workers have bolstered SSDI rolls, they said. In addition, “difficult-to- verify disorders,” including muscle pain and mental illness, more easily qualify for SSDI under program reforms, Autor wrote in a 2011 paper. The aging baby-boom population, changes in Americans’ health conditions and the entry of women into the workforce weren’t the driving forces behind the gain in SSDI, Autor wrote.

Kia Green, a Social Security spokeswoman, hadn’t responded to an e-mail request for comments as of 7:30 p.m. yesterday.

Based on current trends, 7 percent of the nonelderly adult population could be receiving disability benefits by 2018, Richard Burkhauser and Mary Daly wrote in the spring issue of the Journal of Policy Analysis and Management. That’s two years after the SSDI program will run through its trust fund, according to an April report by the Social Security trustees.

Costs Increase

Costs have increased with the rolls: The program spent $132 billion last year, more than twice as much as in 2000. Once the trust fund dries up, the program’s incoming revenue will be enough to cover only about 80 percent of scheduled benefits, the trustees said.

To help reduce the strain on the system and make it possible for more disabled people to remain in the labor force, Burkhauser, a policy professor at Cornell University in Ithaca, New York, and Daly, associate research director at the Federal Reserve Bank of San Francisco, argued SSDI should be modified. They said raising taxes on businesses with a larger share of employees on SSDI would provide an incentive for these companies to offer the employees better accommodations and rehabilitation programs that prolong their ability to work.

The current program, which assumes that disability and employment are “mutually exclusive” is “both archaic and fiscally unsustainable,” they said. “Fundamental reforms, if done well, can lower projected long-term costs for taxpayers, make the evaluative tasks of disability administrators less difficult and, importantly, improve the short- and long-run opportunities of people with disabilities.”

Overall stress levels rise dramatically during tough economic times. Stress causes accidents and illnesses. More accidents and illnesses cause more disability. This is nothing new. If global stress levels rise to a level that inspires enough rage to produce a global revolution – now that would be new.

“I don’t understand, the chinese and indians can do all the work, we can sit down and have government housing and free food. Why work if we don’t have to or want to?” loooool. You don’t see anything morally wrong with that concept, do you? Furthermore, can you see why it doesn’t work? Labor arbitrage. “why work if we don’t want to or have to” … are you listening to yourself? It’s both. People want to AND have to work. Even then, enslaving China and India is neither possible nor morally acceptable.

@Colin, If china wants to work, and can supply all the rest of us more productively in a world of limited resources, that isn’t slavery, they have the free choice to do so. If the robots and AI algorithms can do the job better and more efficient than I can and are far more productive, it doesn’t make sense for me to do it, or u either, even if I want to do it, its not a good use of resources eh? Aren’t we all armchair economists here? Worrried about the productive use of limited resources? Maximizing efficiency? As McCain said, I don’t see the first one of you outside in the strawberry field picking fruit, much easier to sit around posting on MMT blogs eh? While a mexican or automated robot picks the fruit. You all are already a product of this advanced society and don’t realize it, a society where the “cloud” and AI neural net trading algorithms rule the day, even warren had an AI neural net strategy fund controlling lotsa money. I really think a lot of you don’t see the big picture that all this MMT operations talk is supposed to exist under. Your attitudes here prove it. Now don’t get up from behind that computer termal and start picking your own strawberrys and making your own jam to prove me wrong, you might get bit by a snake out in that field or get some skin cancer under that sun! ;)

@Save America,
Better be careful though. Once the AI robots rule the roost, they might make us all start hunting and gathering for sport. Once they program themselves to need entertainment, imagine the tricks they’ll ask us to perform.

@chewitup, No kidding, they already got lots of people here at the edge of thier seats looking at funny numbers in things like indexes and Dow Jones components stock prices and 1’s and 0’s in spreadsheets that are fubared beyond understanding. Those AI trading algorithms are laughing at all you silly humans watching the numbers go up and down and bounce all around. The thing about free cheese, chew it up, is that the spring on the mouse trap usually gets you before you get the free cheese.

Colin Reply:May 5th, 2012 at 11:42 am

@Save America, save America, just look at what the poor do when unemployed–they drink and do drugs and generally nothing useful. You just missed the whole point and stated a bunch of obvious stuff from Econ 101. now don’t transfer out of community college into a real college to prove me wrong or anything,

@Colin, Colin, I watched Obama’s press correspondence dinner with Jimmy Kimmel, and he was sad that Obama was coming down so hard on the potheads lying about his earlier promises to legalize. He asked everyone who hadn’t smoked weed to raise thier hands, very very few people raised thier hands. I wonder if our gracious host Warren has smoked weed, when I was down in the virgin islands last month, it was easy available all over.

Warren has advocated for drug legalization and based on that I went to oaksterdam university and took some marijuana classes from ed rosenthal so I could be ahead of the game (16 states now have medical marijuana laws)

See in california where there is an actual legal marijuana industry, you can get very high grade medicine and be safe about it with good businesspeople, unfortunately the drug war only enriches crooks and keeps things dark and dirty like the prohibition of alcohol did.

Obama has said the one greatest thing he would like for his presidency to reflect, is new clean energy sources that saved our modern way of life and got us off middle east oil, guess what, hemp grows really fast, and is a great source of biomass for clean green energy and we used to grow a lot of it in the USA – sponsored by the government.

But I don’t hear warren talking about taking those 3000 or so unemployed USVI fuel refiner people and turning them into hemp farmers. The real point as I see it is there is about 10 billion or so people and growing, and if people want to drink or smoke or abort thier baby, who are you to control them and say no? Would 40 million americans smoking pot be the end of the universe? My dad died and his end of life was filled with pain and misery and his VA military doctors prescribed him marijuana to help fight the cancer and pain, but he was in a state where he couldn’t legally get it, so being the good soldier he was, he endured immense immeasurable suffering so he could follow the laws and be a good warrior for his country.

I don’t understand, the chinese and indians can do all the work, we can sit down and have government housing and free food. Why work if we don’t have to or want to? Work is a cost, rest and relaxation is a benefit. I think the social stigma that makes people feel ashamed to sit down and enjoy the fruits of our modern society needs to be addressed. We should make people feel happy to have the easy life, instead of feeling shame.

@Paul Palmer, They shouldn’t fear losing thier jobs, that is a given, and as technology and productively improve, even more so than now, fear of savings? LOL! Of 1’s and zeroes in electronic spreadsheets that russian hackers, chinese military, and CIA spooks have all marked up and down in one big cyberwarfare circlejerk? LOL! You are joking right? You do read this blog a lot right? I think the ONLY thing you should really fear is there is this guy in the room with a GUN, and he is pointing it at your head, and if you don’t get some of his business cards, he may blow your head off, but fear of savings and loss of work, those are silly fears. I don’t remember the founding fathers saying to be fearful of a changing world, or productive work environments where jobs and skills change, houses can be demolished and rebuilt with better materials and technology, they said be wary of that warren mosler dude and his gun and his business cards in that room and they fought and died for that fear I thought, not the other fears that you think are critical.

This guy was the father of cybernetics, pioneered feedback research in many different systems, his fear was that in the future, as machines and robots took over the work, that 10 billion humans who were made redundant would be scared and made to feel worthless and the calamaties that would bring. Fear is your only enemy, being a bum is OK. Even Warren sits around a lot on a boat and lazily fishes instead of being in DC where a lot of you would probably think he could me more useful and productive.